A national strategy for economic growth and poverty reduction

Muhammad Yunus
(Reprinted from The Daily Star of June 27, 2002)

I am disappointed, more so, hurt, by the way the strategy document has been prepared.

I am hurt because we may miss great national opportunity to organise ourselves for the most important task ahead of the nation. But on the positive side, I am glad that we have a document around which we can hang our thoughts leading to the preparation of the real strategy document.

Reading the document I felt that it is not a strategy document, it is an academic document. It could be better titled as : "All You Wanted to Know About Poverty". An executive in charge of national poverty reduction will have very little use of this document in taking decisions. Every ministry of the government can continue to do whatever they have been doing before this document was prepared, still no one can point accusing fingers at them by saying that they are out of step with the Poverty Reduction Strategy. A strategy document must be very clear regarding do's and don'ts, must's and mustn'ts --- so that anybody can see who is out of step, if anybody gets out of step.

What would I have done if I had to draw up this strategy paper ?

I would have started out by suggesting the creation of a strong poverty monitoring outfit for continuous monitoring of poverty upazila by upazila. I would have warned the government that if something cannot be monitored continuously, it cannot be achieved within a timeframe, just like a multi-million dollar construction work ---- you can finish it on time only because you monitor everything, every day.

I would have recommended that the government publicise the progress of the poverty reduction in each upazila, listing them in order of merit, every six months. By doing that government will create occasions for upazilas to celebrate their achievements, express their disappointments (even anger) for their failure, and prepare themselves to catch up with others. Government can encourage various enterprises to announce awards, prizes, honours, for achieving various achievements by upazilas, within each half yearly segment of the total time span.

Government can also encourage the business enterprises, social organisations to give awards and honours to persons, organisations, institutions for their special contribution in achieving specific results. They may even announce competitions.

I'd have also identified the programmes, organisations, institutions, ministries, agencies, policies, even persons, who made negative contribution to poverty reduction during the past 15 years. I'll grade them according to their negative contribution.

The reason why I'd have done this, is a very simple one. On the basis of this information, I'd recommend that in the coming 15 years government provide all the support to assist the recognised "heroes" of the past so that they can contribute more, that Government inspire others to follow their path, help generate more innovative ideas. If the "heroes" of the past have more ideas the government should go out of the way to provide them every support to try out their new ideas. Obviously, at the same time government should do everything in its capacity to restrain the "villains" of the past, and help them transform into themselves into "heroes" of the future.

Poverty eradication is a simple task: In its basic form poverty eradication is a very simple task. We should never allow ourselves to be duped by the smart people to think that it is a complicated thing. It is not. First thing to remember is that poverty is not created by the poor people. It is created by the institutions and the policy environment created by the designers and managers of those institutions. There is nothing wrong with poor people. They can get out of poverty by themselves. All they need are opportunities. That's what State must provide. They need opportunities for earning income. That's all.

Wage Employment: How does the State do it ? Enhance the scope of wage employment. That's why agriculture becomes so important in Bangladesh. The more dynamic this sector becomes, the more wage opportunities are created for the poor. Of course, agriculture alone cannot provide all the employment that is needed. The more we rely exclusively on agriculture the more chances will be that agricultural wage will be reduced to mere pittance, because of over-supply of employment-seekers. That income will not be good enough for overcoming poverty. That's why we also need employment away from agriculture. Rural and urban industrial employment is the next option. We'll have to create environment for more investment, and expansion of the existing industrial base. We need strong local government to create local investment opportunities. (Strong local government is needed for another important reason. The lower the tier of the local government, and the stronger it is, the greater is the opportunity for the poor to participate actively in it to get things done in their favour.

Another option is overseas employment. Injection of income from remittances has played a vital role in giving a boost to rural economy and poverty reduction. While we are busy bragging about how remittances are helping economy in improving the foreign exchange reserve, we have paid very little attention to mobilising these remittances for investments within the locality or within the country. Most of it is wasted away in hiking up the real estate value or extravagant expenses on social occasions. While we must put all our attention to ensure high growth in wage employment we must not forget that it is slow process.

Self-employment through microcredit: Luckily for us we have opened up another option which is almost limitless in scope -- that is self-employment. Microcredit is the vehicle which creates it. It has many attractive features. Over the last twenty-five years it has been studied by researchers in its every single aspect. They come up with very positive findings with regard to the impact of microcredit. They find steady movement of the borrowers from poverty to non-poverty, improvement in housing, sanitation, nutrition, education, child mortality, women empowerment etc. Atleast 7 million poor families in Bangladesh have access to microcredit. Around Tk 5000 crore is disbursed each year as microcredit. In a country where conventional banking is stuck with Tk 20,000 crore in overdue loans, microcredit sector has created a financial service with near 100% repayment rate. Bangladesh has created a microcredit wholesale fund, PKSF, which has set the business standard for the world. PKSF has played a very strategic role in Bangladesh, in expanding the access to microcredit. All the credit goes to the Government of Bangladesh for creating this strategic institution. Now many countries are emulating it.

Best news about microcredit is that they are sustainable; they can cover their cost from their own income. They do not need budgetary allocation to keep them afloat. Grameen Bank alone lends out nearly Tk 2000 crore each year. It has stopped accepting donor money since 1995. It has stopped borrowing money locally too. It generates enough deposits to carry out its credit programme and pay back all the past loans without ever falling behind in repayment even by a day. Currently 82 per cent of its outstanding loans is financed from its deposits and own resources. By the year-end this percentage will exceed 100%. During the next year, Grameen Bank will enter into a phase where it will have more money in deposits, mostly from its own borrowers, than outstanding loans, unless it expands its business. Grameen Bank is owned by the borrowers. The borrowers come under life insurance coverage, without paying any premium, by being a shareholder of the bank. Their loans are covered under a insurance programme where the entire outstanding loan amount is paid off by the insurance fund if the borrower dies. Grameen Bank gives housing loans at 8 per cent simple interest. More than half a million rural houses have been built with Grameen Bank loans. GB offers scholarships to 3700 selected students from Grameen families, each year, and loans (at 5 per cent simple interest) to all students from Grameen families, at higher levels of education.

Credit As a Human Right: Credit is so important in the lives of all people that I have been arguing that credit should be accepted as a human right. Bangladesh can take pride at what she has achieved in ensuring access to credit by the poor. If government is supportive in providing policy-support, micro-credit can ensure access to credit for the remaining poor families of Bangladesh. Credit goes to the Government of Bangladesh for creating this bank for the poor by a special legislation passed by the parliament. Now 19 years after is was created, it needs some policy support from the government to resolve some important institutional issues to make the bank more consistent with its objectives (please see Appendix). The faster these issues can be resolved, better policy environment can be created for Grameen Bank.

I bring out the case of Grameen Bank for another reason. It is about ownership. One key recommendation I'll make as a strategy for poverty eradication is to create exclusive institutions for the poor, with the ownership of the poor. Job creation is good. Ownership creation is much better. That's where Grameen Bank example comes in. This is a bank for the poor, owned by the poor, and finally, today, it operates with their own money, it makes profit, it provides insurance support to them, it provides financial incentives for education of their children. We can and must build many institutions with exclusive or part ownership of the poor, particularly poor women, and help the poor to have equity participation in business enterprises, specially strategic business enterprises, through mutual funds of the poor.

Agricultural Credit: Lessons learnt from microcredit can be applied with equal success in providing agriculture credit, and providing credit to the people who do not have access to credit from conventional banks. Social entrepreneurs can be encouraged to come forward with their plans to give it a try. Farmer-owned agricultural Bank, similar to Grameen Bank, can also be created.

Social entrepreneurs in Bangladesh have offered interesting examples of social-objective-driven enterprises, such as, schools for the poor, information technology for the poor, mutual fund for the poor, health insurance for the poor, and so on. Government machinery has not been designed for such creativity. Once the policy-makers accept this reality much of the uneasiness in the relationship between non-profit sector and the government will end. Faster we can move away from ridiculing the successes of the non-profit sector and start admiring their work, provide inspiration and hold out challenges to them to do more and remove the bureaucratic hurdles along their way, faster we can bring an end to poverty in Bangladesh.

Microcredit network of Bangladesh gives Bangladesh a better chance of success in its endeavour to end poverty. It may not have done quite a miracle so far, but its contribution is significant. When the economy will pick up speed in moving forward, the poor people will have better opportunity to show the real power of microcredit in changing their lives.

(Abridged)